An Arbitral Award Cannot Be Set Aside Solely Because the Appellate Court's has a better view to that of the Arbitral Tribunal

Authored By: Abhishek Bhushan Singh, Advocate

Case: Punjab State Civil Supplies Corporation Limited & ANR.  Vs. M/s  Sanman Rice Mills & Ors.

Citation: 2024 SCC OnLine SC 2632

Court: Supreme Court of India

Bench: Justice P.S. Narasimha and Justice Pankaj Mithal, 

Date of Judgment: 27.09.2024

Brief facts of the Case

• Punjab State Civil Supplies Corporation Ltd. entered into an agreement on 06.10.2008 with M/s Sanman Rice Mills for milling paddy and supplying the resultant rice to the Corporation.

• The Corporation supplied 2,02,850 bags of Grade ‘A’ paddy, weighing 70,997.50 quintals, to the Rice Mill.

• After processing, the Rice Mill resupplied only part of the rice, resulting in a shortfall of 35,110.39 quintals, valued at Rs. 7,16,15,716/-.

• The Rice Mill paid Rs. 5 crore through ten cheques of Rs. 50 lakh each, leaving a balance of Rs. 2,16,15,716/-.

• A dispute arose regarding the recovery of the balance amount and was referred to arbitration.

• The Arbitrator, on 08.11.2012, awarded Rs. 2,67,66,804/- in favor of the Corporation with 12% interest per annum.

• The Rice Mill challenged the award under Section 34 of the Arbitration Act, but the petition was dismissed on 07.04.2015 holding that with the finding that there is no illegality in the award within the scope of interference permissible under Section 34 of the Act.

• Dissatisfied, the Rice Mill filed an appeal under Section 37 before the High Court, which allowed the appeal on 10.01.2017, setting aside both the arbitral award and the order dated 10.01.2017.

• The Corporation has then now appealed against the High Court's judgment.

Points of determination before the Hon’ble Supreme Cour

1. Scope of powers of the Appellate Court under Section 37 of the Arbitration Act

2. Whether the Appellate Court was justified in setting aside the award dated 08.11.2012 which had already been confirmed under Section 34 of the Act.

Laws Involved

• Section 34 of the Arbitration and Conciliation Act, 1996  

• Section 37 of the Arbitration and Conciliation Act, 1996

• Bharat Coking Coal Ltd. v. L.K.Ahuja (2001) 4 SCC 86

• Dyna Technology Private Limited v. Crompton Greaves Limited (2019) 20 SCC 1

• MMTC Limited v. Vedanta Limited (2019) 4 SCC 163

• Bombay Slum Redevelopment Corporation Private Limited v. Samir Narain Bhojwani 2024 SCC OnLine SC 1656

• UHL Power Company Limited v. State of Himachal Pradesh (2022) 4 SCC 116

• Konkan Railway Corporation Limited v. Chenab Bridge Project Undertaking(2023) 9 SCC 85

Judgment of the Court:

The Hon’ble Supreme Court after considering the laws well settled in the above judgments held that the scope of the intervention of the court in arbitral matters is virtually prohibited, if not absolutely barred, and that the interference is confined only to the extent envisaged under Section 34 of the Act.

The appellate power of Section 37 of the Act is limited within the domain of Section 34 of the Act. It is exercisable only to find out if the court, exercising power under Section 34 of the Act, has acted within its limits as prescribed thereunder or has exceeded or failed to exercise the power so conferred.

The Appellate Court cannot re-evaluate the merits of the arbitral tribunal’s decision as if it were an ordinary appeal court.

Its power is more akin to that superintendence as is vested in civil courts while exercising revisionary powers. The arbitral award is not liable to be interfered unless a case for interference as set out in the earlier part of the decision, is made out.

It cannot be disturbed only for the reason that instead of the view taken by the arbitral tribunal, the other view which is also a possible view is a better view according to the appellate court.  

The court further held that the proceedings under Section 34 are summary in nature, and Section 37 appeals are even more summary, not akin to regular civil appeals.  

The arbitral award can only be set aside if it contradicts substantive law, the Arbitration Act, or the terms of the agreement..

In this case, the arbitral award of 08.11.2012 was based on evidence, reasonable, and did not violate public policy, fundamental legal principles, or any substantive law. Therefore, the award was rightly upheld by the court exercising the powers under Section 34 of the Act.

The Appellate Court, as such, could not have set aside the award without recording any finding that the award suffers from any illegality as contained in Section 34 of the Act or that the court had committed error in upholding the same. Merely for the reason that the view of the Appellate Court is a better view than the one taken by the arbitral tribunal, is no ground to set aside the award.

In view of the above, the Hon’ble Court, stated that the Appellate Court committed a manifest error of law in setting aside the order passed under Section 34 of the Act and set aside the impugned judgment and order dated 10.01.2017 passed under Section 37 and restored the arbitral award dated 08.11.2012.

Opinion

The Hon’ble Supreme Court reaffirmed the principle that arbitral awards cannot be set aside merely because an appellate court holds a different or even better view than the arbitral tribunal. The scope of judicial intervention under Section 34 and Section 37 of the Arbitration and Conciliation Act, 1996, is highly limited, with interference permitted only on specific grounds such as violation of public policy or substantive law. The Court ruled that the appellate court erred in re-evaluating the merits of the case and setting aside the arbitral award without identifying any illegality as required under Section 34. Consequently, the Supreme Court restored the arbitral award, emphasizing the finality of arbitral decisions and the restricted role of courts in such matters.